The imposition of Digital Company Income Tax is Delayed?

Wednesday, 29 April 2020

The imposition of Digital Company Income Tax is Delayed?

JAKARTA. The government is still weighing to collect taxes on income obtained by digital companies, although in fact it is already contained in Government Regulation in Lieu of Law (Perppu) number 1 of 2020. In this regulation the government changed the concept of permanent establishments (Bentuk Usaha Tetap/BUT) from the previous which had physical presence to the Significant Economic Presence. 

This concept change implicates the imposition of Income Tax (PPh) or electronic transaction tax on online trade transactions conducted by foreign tax subjects that meet the provisions of significant economic presence. This policy is one step ahead from the OECD and G-20 countries, that are just about to create a consensus regarding the taxation system for electronic transactions by the end of 2020.

Read: Indonesia Cuts Tariff on Corporate Income Tax and Officially Applies Digital Tax

Nevertheless, the Government still seems to be waiting for a global agreement, before actually realizing the tax imposition on  E-commerce. Therefore, the imposition of tax on digital company income will also have implication for the emergence of double taxation. As quoted from, the government is currently discussing this policy with the G-20 working group.

Constrained by Covid-19

On the other hand, a number of OECD and G-20 meetings previously scheduled to discuss this matter failed to take place due to the outbreak of Corona Virus Disease 2019 (Covid-19). Some of these meetings include The Inclusive Framework (IF) on Base Erosion and Profit Shifting (BEPS), which was supposed to be held in early July 2020, in Berlin.

Hence, quoting, for now the government will prioritize the imposition of Value Added Tax (VAT) on the E-commerce which is considered more realistic to be implemented. VAT imposition will be collected on each electronic transaction, so it will not lead to double taxation.



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